Financial Crisis and Shipbuilding

October 7, 2008

Anyone who was in Hamburg late last month the the SMM 2008 exhibition would contend that the shipbuilding market is stronger than ever, as the expo drew a record of nearly 2,000 exhibitors and 50,000 attendees. But the continuing global credit crisis, which apparently is now extended far beyond the subprime mortgage mess in the , could eventually what has been a historic shipbuilding run.

The shipbuilders’ problems stem from those of both the shipping and banking, as a slowdown in trading is compounded by the inability or reluctance of banks to extend financing for orders. The Baltic Dry Index (BDI), the global benchmark for the cost of shipping commodities, has slumped to a quarter of its level four months ago.

Asian shipyards filled their order books until 2011 on the back of a decade-long Asian economic boom. That still provides a cushion for larger and more efficient yards, but some Chinese fledgling companies reportedly now scramble to put refund guarantees in place to secure contracts.

Shares in Korean shipbuilders plunged on Monday, led by Daewoo Shipbuilding & Marine Engineering amid concern the downturn could force Korea Development Bank and Korea Asset Management to cancel the sale of their 50.4 per cent stake in Daewoo Shipbuilding.

While it can be difficult to find good news, some did emerge on Tuesday as global steelmakers warned that rising raw material prices, excess capacity and environmental concerns could conspire to drive down the cost of steel in the coming months, according to a WSJ report.

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